Debtors Control Account with Contra
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Skill: Apply
Stimulus
| Item | Amount (RM) |
|---|---|
| Debtors balance on 1 August 2025 (b/d) | 8,500 |
| Credit sales during August | 42,000 |
| Cash received from debtors | 35,600 |
| Discount allowed to debtors | 900 |
| Sales returns (faulty goods returned) | 1,200 |
| Contra with Creditors Control Account | 2,300 |
| Bad debts written off | 500 |
All values in RM. The debt balance as at 31 August 2025 is not given and must be computed.
Question
(a) Prepare the Debtors Control Account for August 2025 and determine the uncollected debt balance as at 31 August 2025.
(b) Explain why the RM2,300 contra entry is recorded on the credit side of the Debtors Control Account, linking your answer to the double-entry concept.
Thinking steps
- Identify that the normal balance of the Debtors Control Account is a debit balance because it represents an asset (the total owed by all debtors).
- Classify each item. Items that increase debtors (debit) are the balance b/d and credit sales. Items that decrease debtors (credit) are cash received, discount allowed, sales returns, contra and bad debts.
- Note the unusual item: the RM2,300 contra. Because the same party is both debtor and creditor, part of the debt is settled by set-off, not cash, so it reduces debtors (credit).
- Total the debit side: RM8,500 + RM42,000 = RM50,500.
- Total all credit items (excluding balance c/d): RM35,600 + RM900 + RM1,200 + RM2,300 + RM500 = RM40,500.
- Determine balance c/d: RM50,500 - RM40,500 = RM10,000, and confirm both sides total RM50,500 (balanced).
Model answer
(a) Debtors Control Account:
Debit side: Balance b/d RM8,500 + Credit sales RM42,000 = RM50,500.
Credit side: Cash received RM35,600 + Discount allowed RM900 + Sales returns RM1,200 + Set-off (contra) RM2,300 + Bad debts RM500 = RM40,500.
Uncollected debt (balance c/d) at 31 August 2025 = RM50,500 - RM40,500 = RM10,000 (debit balance).
(b) Because Kedai Basikal Murni is at the same time a debtor (in the Debtors Control Account) and a creditor (in the Creditors Control Account), the RM2,300 that cancels the mutual debts is set off (contra). Under the double-entry concept, this settlement is debited in the Creditors Control Account (reducing what the workshop owes) and, as its matching pair, credited in the Debtors Control Account. This credit reduces the debtor's balance because part of it was settled not by cash but by offsetting the workshop's own debt to that customer.